Tuesday, July 28, 2020

Morning Note: The Glue

Asian equities finished last night's session mostly in the green, with 10 of the 16 indices we track closing in the plus column. Europe, on the other hand, is struggling this morning, with 14 of 19 bourses in the red. U.S. equities are struggling as well, as I type; the Dow's down 144 points (-.5%), the S&P's off .4%, Nasdaq's down .7% and the Russell 2000 is trading the best so far, only down .2%.

The VIX (SP500 volatility) is up 1.9%, to 25.3, while VXN (Nasdaq volatility) is up 3.1%. 

Oil's down 1%, Gold's flat, silver's taking a much-needed breather, down 2.2%, copper's up .4% and the ag complex, save for milk, is red across the board this morning. 

The 10-year treasury is trading higher in price (lower in yield) and the dollar is slightly in the green. 

Our core portfolio is hanging in there this morning, relative to stocks, down just .14% as I type, with utilities, Verizon, base metals, staples, the yen, healthcare and gold (in that order) offsetting the hit across the more cyclical components of our mix -- ranging from financials, down .3%, to silver, down 2%.

Yesterday I shared some of my latest musings on the US dollar and how it presently serves as the glue that's keeping a severely cracked financial market edifice from collapsing altogether.

Here's what I added last evening:
Literally, the dollar cannot be allowed to rise notably. The panic that would ensue, and thus the desperate unwind of dollar-funded carry would utterly tank global asset markets. Therefore, knowing this, the Fed has become unrestrained in terms of doing whatever it takes to devalue the dollar, including -- in addition to massive money printing -- aggressive yield curve control (I’ve no doubt) long before this is over.

The above said, the dollar right here is massively oversold and futures traders are multi-year net-short. Any blip higher could be met with aggressive short-covering that would see it spike and, I suspect, commodities correct; which would be the event that would have us increasing our target weighting. It could also do an immediate number on stocks, which, at this point, would not have us increasing our target weightings there.
This week’s Fed meeting is a risky event for the dollar, and, thus, for asset markets in general. Any hint that they’re relaxing, say, based on the relative calm in credit markets of late, will have the dollar spiking and assets selling off… Don’t know that they’ll hint that -- you’d think they wouldn’t -- given the present state of COVID. But it’s a real risk right here nonetheless...
Have a great day!

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